Twitter Valuations Carry A Heavy Downside Risk

  • Twitter's revenue growth continues to be exceptional.
  • The lack of profitability and user growth are major risks.
  • Twitter valuations indicate a downside potential of 17%.


Author's Note

Even Twitter's junk rating (debt rating) by S&P hasn't dampened the interest in Twitter, as the stock has made its way back to nearly $50 a share. This is in part due to Twitter's Q4 2014 earnings, which saw the company's loss margins reduce significantly. However, for value investors, Twitter is still strictly off-bounds, as the micro-blogging site still incurs huge losses every quarter.

For those who are keen to invest in social media stocks, we think Facebook is an attractive investment opportunity. Be it our recent Facebook Twitter comparison, or our older coverage of the Facebook vs Twitter battle, Facebook has come up trumps leading Twitter by a huge margin on nearly every front.

As for Twitter, we think the stock is a risky investment option. You can watch our Twitter stock analysis to see more fundamental aspects about the company, like its return on equity, free cash flow margins and more, following its latest earnings.

Video Transcript

Hello and welcome to this videograph about Twitter (NYSE:TWTR) . In this Twitter stock analysis video, we're going evaluate Twitter on parameters like revenue growth, profitability, User growth and valuations.

Twitter has delivered exceptional growth, quarter after quarter, for the last two years. The latest quarter was no different, with the micro-blogging site nearly doubling its revenue over the year ago quarter. Twitter showed a significant improvement in profitability, with losses reducing in the latest quarter. However, the company's margins are now at their pre IPO levels, and it remains to be seen if they can improve further from here.

Twitter's user growth has slowed consistently, raising concerns about future growth. In spite of the Twitter's laudable user monetization, without user growth, it's hard to see the kind of scalability that's factored into Twitter valuations.

Twitter valuations are more expensive than those of Facebook's. This in spite of the fact that Facebook reported a 24% net profit margin in twenty fourteen, as opposed to Twitter's huge losses. Valued based on Facebook's price to sales multiple, Twitter valuations indicate a 17% downside potential, with a price target of 40 Dollars a share.

The way we see it, revenue growth, is all that Twitter has going for it. In spite of the reduction in losses, Twitter's profitability is poor, going by the tenets of value investing. All, in all, Twitter valuations are expensive, and carry a downside risk.

Thanks for watching this video. We hope you found it interesting. Do write back to us with your insights or feedback about any of our work. For more videos about your favorite stocks, always visit

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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